Local-aid battle divides business

In the budget battle playing out in St. Paul, business interests are diverging.

Doug Olson is business development manager with Lou-Rich Inc., a contract engineering and manufacturing company with more than 325 employees in Albert Lea, Minn. He's also chairman of the local Chamber of Commerce.

"We are considering hiring more people, some from outside our area," said Olson of his company. "The city of Albert Lea has done a good job of being as efficient as possible. And we don't want to lose good candidates because of [diminishment of municipal services]. That's a concern for us if local government aid gets cuts further."

The question Albert Lea and other cities are asking is whether they can afford another year of cuts in state aid that helps keep the local snowplows running and the extra cop on the night shift.

Olson's enough-already view adds to concerns among state chambers that more cuts in "local government aid" may hurt the local business climate.

The umbrella organization, the Minnesota Chamber of Commerce, marched in lockstep with Gov. Tim Pawlenty for eight years on cuts to local aid and most other issues. It has joined with the Republican majority in the House and Senate to reject Gov. Mark Dayton's call to negotiate a marginal tax increase on the wealthiest Minnesotans. The Republican majority also wants to rely largely on freezes and cuts to balance the budget.

"A lot of chambers have said they want to be part of the solution and reform government," said David Olson, who has headed Minnesota's biggest business lobby since 1991. "Should people just be fighting for the same checks as last year, or can we focus on reforms and how permits are handled and business expansion?"

David Olson said cities should be willing to pay for more of their own expenses, continuing the trend that saw state aid fall from about $500 million to $425 million last year, according to the Coalition of Greater Minnesota Cities. The aid formula benefits Wadena, in north-central Minnesota, and works against Edina. A 1 percent increase in local property taxes in Wadena raises about $5 per resident. In Edina, a 1 percent increase in property taxes raises about $23.

Albert Lea, an older town with a strong business community, sides with Wadena.

"We have all the business players on our board," said Randy Kehr, executive director of the Albert Lea Freeborn County Chamber of Commerce. "And they were unanimous in standing up for the city of Albert Lea, which has cut 10 percent of its workforce in the last two years. They've been creative in saving some police jobs. The city also operates our infrastructure. Our small businesses, most operate on 5 percent profit margins or less. A property tax increase can put you into a loss or cause you to raise prices. Our board believes the Minnesota Chamber did not see that."

So far only 10 of the more than 150 local chambers have signed a resolution in support of no more cuts to "LGA," in defiance of the state chamber's wishes. That group does not include the Minneapolis and St. Paul chambers. But they are not following the state chamber's lead either.

The St. Paul Area Chamber of Commerce, long an advocate of state subsidy for local sports arenas and other municipal projects, now is headed by Matt Kramer, who served Pawlenty as chief of staff and as the state's economic development czar.

"We don't have a specific position on LGA," Kramer said. He declined to elaborate.

The Minneapolis Regional Chamber isn't buying the Minnesota Chamber's approach. The chairman of the Minneapolis Chamber is Jefferson Lines CEO Charlie Zelle, a Democrat who supported Dayton for governor. This is all to demonstrate that Minnesota business is not like-minded on local government aid.

Dayton would freeze local government aid, which has declined since 2003, at current levels. The Minnesota chamber favors more cuts.

David Olson points to several state pilot projects to demonstrate that cities can get more efficient through sharing equipment and personnel among adjacent towns and counties.

The real cost driver of state government is health care, which threatens to consume most of the general fund within a decade unless Minnesota slows rising medical costs of the state's low-income elderly and state employees.

Pawlenty ignored recommendations of his own tax-reform commission in 2009, which advocated a fairer tax system, a broader-but-lower sales tax and also would have abolished the Minnesota corporate income tax. The Minnesota Chamber board, which favored much of the report, refused to advocate for it.

Dayton and the chamber need to start with the tax reforms Pawlenty ignored. Olson is amenable to that. But he's not amenable to Dayton's taxing-the-rich agenda.

"Some people don't like to hear this, but the beauty of being rich is that you can live where you want," Olson said. "We don't own the corner on quality of life."

Olson, who was paid $380,000 by the chamber in 2009, gives high marks to Dayton for reaching out to business and streamlining environmental permitting. The Minnesota Chamber also should demonstrate flexibility on local government aid in the short run. And pledge to work with Dayton on bipartisan tax reforms after the session that will improve the state's tax fairness and business climate.

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com